NEWS / Affiliate / Standstill Agreement incorporated as standard

Affiliate

01 MAY 2019

STANDSTILL AGREEMENT INCORPORATED AS STANDARD

The Construction Industry Council (CIC) has published a range of standard templates and protocols for construction contracts. These are explicitly endorsed by a number of professional indemnity (PI) insurers in their policy wordings, and therefore are often seen by insurance professionals as a straightforward solution if a collateral warranty, novation, BIM protocol etc document is needed, and which can be adopted by the parties with PI insurance support and otherwise a minimum of negotiation and disagreement. 

The CIC has now published a draft of a new mediation agreement and procedure, incorporating a fixed £6,000 mediation fee for disputes below £100,000. The CIC intends to establish a panel of accredited and experienced mediators to support the procedure.

Mediation is of course a form of alternative dispute resolution, and as such is emphasised in the Pre-Action Protocols for pursuing legal claims for negligence. It has become a common feature of construction appointments, not just in contracts formally emphasising project partnering arrangements and a spirit of cooperation, but also simply as a commercial mechanism to try to preserve commercial relationships and avoid the costs of legal action. As such, more and more appointments contain clauses which set out a series of steps in the event of a dispute; first for senior members of the firm to meet in good faith to try to resolve the issue, then for the parties to mediate, and only then if these attempts have failed, for adjudication notices or legal proceedings to be issued.

With mediation established and increasingly common (and achieving regular successes it has to be said), having standard agreements which pre-agree mediation approaches, selection of mediator and costs can only assist the parties.

Amidst this general approbation, practitioners should take note however that the draft procedure does state the following:

"...the running of any contractual or statutory limitation period is suspended from the date of signature of the Mediation Request by the last person to sign the same until the termination of the Mediation … , or at the latest six months after the date of the last person signing the Mediation Request, unless otherwise agreed by the parties in writing..."

In effect therefore the procedure automatically includes a standstill arrangement. There are solid reasons for this, so it is not an anomaly. Nevertheless, the consequences could come as a shock if the detail of the new procedure is not understood.

Standstill agreements “stop the clock” for limitation purposes. If a party is pursuing a claim but is facing a limitation problem (for example it is 11 years and 11 months on a contract which states that there is no liability after 12 years from Practical Completion), then they have no choice but to issue legal proceedings or lose their claim. As such legal costs have to be incurred in issuing, which one way or another will fall on either the claimant or the defendant, and may represent an adversarial escalation of the issue when the parties might have preferred to investigate or discuss it further. There is plenty of PI claims experience of a loss occurring many years down the line, and therefore a potential claimant only becoming aware of an issue just before a liability period will expire. With an action about to become statute barred, the claimant is forced into litigation, and perhaps without fully understanding the situation, and where they might have taken a different course if they had had more time to consider and investigate the situation further.

As such a standstill agreement is an arrangement between the parties to pause limitation for an agreed length of time (typically 3-6 months).  As such standstill proposals are carefully considered by the parties in terms of the context of the individual situation, and their own interests.

One of the reasons for the CIC Model Mediation Procedure including an automatic standstill arrangement will be to give the parties the opportunity to mediate, and to avoid the need for protective proceedings to have to be issued. Nevertheless, the automatic entitlement to a standstill is different to the usual mutual consideration and agreement, and it is possible for it to be exploited by some claimants where under normal circumstances a standstill agreement might be refused by the defendant.  

It is not difficult to envisage a scenario where a professional signs an appointment containing a clause stating that the CIC mediation procedures will apply in the event of mediation. Given that it is/will be a standard document, and that it comes from the CIC, such a clause may cause no immediate concern to the professional and be accepted without further ado. However this does then create a facility for a party to automatically stop the clock on limitation for a period of time, simply by initiating the mediation process.  This could lead to further implications if back to back contracts, reliance documents etc all make simple reference to the main contract, and therefore draw the same clause into their own arrangements.

None of this is to suggest that there are any insurmountable problems, and as always it is a case of careful drafting, understanding the content of the contract, and thinking through the implications of clauses later on down the line, or further down the contract chain.

logo

Brunel is a leading independent professional indemnity insurance broker, with recognised commitment to competitive placement, differentiated offerings, sustainability and client understanding.

Visit website  arrow
James  Burgoyne

James Burgoyne

Director - Claims & Technical

Jim joined Brunel in 2009 and heads up the Technical and Claims Department. As well as representing Brunel on the ACE PII panel, he writes occasional pieces for us on insurance, risk and associated topics.

ALSO FROM OUR AFFILIATES